Economy turns in robust 6% growth in first quarter

THE building boom rode to the rescue in the first quarter to help Singapore's economy expand at a surprisingly strong 6 per cent.

Weaker manufacturing growth was tipped as the Achilles heel, but buoyant activity in construction offset that fragility and continued strength in the services sector made the overall picture rosier than the market had hoped.

Share investors were especially pleased and sent the Straits Times Index up 22.62 points to 3,422.62, its fourth consecutive record close.

Gross domestic product (GDP) growth for the January to March quarter is estimated to have slowed from the 6.6 per cent charted in the fourth quarter last year.

Yet the figure exceeded the 5.5-per-cent median growth predicted by 15 economists in a Bloomberg poll.

The advance GDP estimates, released by the Ministry of Trade and Industry (MTI) yesterday, are meant to give an early indication of quarterly economic performance and are based largely on January and February data.

The Monetary Authority of Singapore also announced yesterday that it is maintaining its policy of a modest and gradual appreciation of the Singapore dollar against a basket of currencies.

In its semi-annual review of monetary policy, the central bank warned of emerging risks to growth, ranging from housing woes in the United States to a weak global IT industry.

In the first quarter, local manufacturing output growth had eased to 6.1 per cent.

'While manufacturing sector growth continued to ease... on the back of weaker electronics demand, the sector remained well-supported by transport engineering and biomedical output,' noted United Overseas Bank economists Alvin Liew and Jimmy Koh in a report.

But the building industry went from strength to strength. With a slew of commercial and residential projects coming up, building activity has surged 7 per cent from a year ago.

The robust services sector was another star performer, with expansion of 6.1 per cent, slightly down on the 6.6 per cent in the fourth quarter last year.

'The healthy growth was led by financial services and wholesale and retail trade,' said the MTI.

Although the GDP estimates were cheered by economists, they warned that Singapore's outlook for the rest of the year is less certain, with much hinging on the jittery US mortgage market.

If consumer demand in the US falters, Singapore's slowing exports could possibly be hurt further.

Standard Chartered Bank economist Joseph Tan said: 'We are at a turning point for the Singapore economy, which is why we are getting mixed signals.

'We have seen dismal trade and production numbers, yet the services sector is strong.'

Economists have been tipping softer performance in the first half of this year, followed by a stronger second half.

'Now it seems that it might actually be the reverse,' said Mr Tan, predicting GDP growth of 5.5 per cent for the full year.

HSBC economist Robert Prior-Wandesforde wrote: 'We see signs that that the export cycle is close to bottoming... at the same time, however, the chances of a strong 'V-shaped' recovery in exports are small.'